AKEL is pushing for a new tax on banks’ big profits through an emergency solidarity levy. Meanwhile, banking groups want to get rid of the special credit institution tax, which has been around since 2011. As lawmakers discuss tax reform, the Bank Association wrote to the parliamentary Finance Committee. They argue that the reasons for this special tax are no longer valid after fourteen years.
According to the law, 35/60 of the special tax paid by banks goes to the Recapitalization Fund until €175 million is collected. This fund was used to support the Cooperative. The other 25/60 stays in the Republic’s Permanent Fund. Banks say the €175 million has already been collected and that the Recapitalization Fund no longer exists.
Banks believe that, given current conditions, the special credit institution tax isn’t needed anymore. “It’s time to lift this burden from the banking system since its original goal has been met. Plus, both local and international changes require stronger capital bases mainly through profits. Also, this special tax puts local banks at a disadvantage when attracting investors compared to other eurozone banks,” says their letter.
Moreover, banks want this tax removal included in tax reform discussions. “If changing the law isn’t possible, we suggest making this special tax a deductible expense. This would clarify that it can be deducted under this article, regardless of the unchanged Credit Institution Special Tax Law.”
They also point out that not allowing this special tax as a deductible expense disrupts tax fairness. It’s an expense no matter how profitable a bank is, unfairly burdening the banking sector and discouraging investment. “Not recognizing it as a deductible expense is discriminatory and doesn’t match similar financial burdens,” they conclude.
However, during Parliament’s talks on tax reform, the Tax Commissioner responded to banks’ calls for abolishing this tax by saying that if it were removed, banks would gain €15 million.
